Considerations for 998 Offers in Employment Cases

Last month, we published an introductory article about how a 998 Offer to Compromise generally operates and the cost-shifting that occurs if a party rejects a 998 offer and fails to obtain a more favorable judgment. When a plaintiff rejects a defendant’s 998 offer and does not get a more favorable result at trial, the plaintiff will be denied his post-offer costs and must pay the defendant’s post-offer costs, including expert witness fees. This may sound simple, but it becomes more complicated when considering how attorney’s fees and costs impact the offer’s value and the calculation of whether the plaintiff obtained a more favorable result.

Attorney’s Fees and Costs in Accepted 998 Offers

A defendant making a 998 offer must decide whether the offer includes or excludes the plaintiff’s attorney’s fees and costs. Generally, “where a section 998 offer is silent on costs and fees, the prevailing party is entitled to costs and, if authorized by statute or contract, fees.” See Engle v. Copenbarger & Copenbarger, LLP, 157 Cal.App.4th 165,169 (2007). This becomes especially important in employment cases under the Fair Employment Housing Act (“FEHA”), which expressly allows a prevailing plaintiff to recover his attorney’s fees and costs. For example, if a defendant’s 998 offer does not include language stating that each party is to bear its own attorney fees and costs, a FEHA plaintiff may accept the offer and still recover costs as the prevailing party, including attorney’s fees.

Calculating Whether Plaintiff Obtained a More Favorable Judgment

If the plaintiff obtains a judgment after not accepting the defendant’s offer to compromise, the judgment’s value is generally calculated by:

• Starting with the amount of money awarded to remedy the underlying cause of action.
• from the judgment. The plaintiff’s post-offer costs are excluded from the calculation because the plaintiff could have accepted the offer and not incurred post-offer costs.
• Adding the plaintiff’s pre-offer costs (and attorneys’ fees where authorized) to the judgment because the plaintiff is entitled to costs as the prevailing party on the judgment.

If the defendant’s offer is silent about costs, the plaintiff’s pre-offer costs are added to both the offer and the judgment when comparing whether the plaintiff obtained a more favorable outcome. If the defendant’s offer states that each party bears its own costs, then the offer’s value is not adjusted by adding the plaintiff’s pre-offer costs, and the offered amount is compared with the plaintiff’s judgment plus any pre-offer costs that the court awards to the plaintiff.

Conclusion

Employer defendants in FEHA cases should pay careful attention to how attorney’s fees and costs are allocated in 998 offers. The following matrix provides a simple explanation for how this element interplays with accepted and rejected offers.

For more information about 998 offers, how to make a 998 offer, and the potential risks and benefits of making one, please contact us at info@mnklawyers.com.

This material is provided for informational purposes only. It is not intended to constitute legal advice, nor does it create a client-lawyer relationship between MNK Law and any recipient. Recipients should consult with counsel before taking any actions based on the information contained within this material.